Stepping in where state regulators have failed, federal
officials are investigating what they call predatory online payday
loan operations that claim immunity from consumer protection laws
because they are owned -- or appear to be owned -- by Native
The Federal Trade Commission and U.S. Consumer Financial
Protection Bureau believe that some of the burgeoning operations
are owned or controlled by non-Native Americans, who are using the
Native American tribes' rights of "sovereign immunity" to shield
them from consumer protection laws.
The loans, some carrying the equivalent of annual interest rates
higher than 750 percent, are widely available online -- to Native
Americans living on reservations as well as anyone else living
anywhere in the United States. State and federal investigators say
that some of these operations deceive consumers (in many cases,
people who already have maxed out their credit cards) about the
costs of the loans, and also engage in abusive and unlawful
collection practices. So far, they have remained largely out of
"If, in fact, that entity is not truly a tribal entity, but it's
just a sham arrangement, then the courts would have an opportunity
to look through that and see it for what it is," CFPB Director
Richard Cordray told a group of state attorneys general in March
FTC Commissioner Julie Brill said her agency and the CFPB are
working together on the issue. "It's one of the working groups that
we have going now -- payday lending," she told the group. "And,
obviously, how the actors have moved online and into tribal
relationships is going to be an important part of that
'A declaration of war'
Reflecting the tensions inherent in the issue and in all matters
regarding relations between the federal government and Native
American tribes, Charles Moncooyea, vice chairman of the
Otoe-Missouria Tribe of Oklahoma, called Cordray's comments "a
declaration of war against Native American tribal governments."
"The fact is our tribe, and tribes nationwide, benefit from the
positive economic impact from these and other business activities,
with revenues directed toward such critical needs as medical care,
education and many other basic necessities," Moncooyea said. "We
will not cower in the face of these malicious and dangerous
Payday loans tend to be short-term affairs that offer modest
amounts -- typically, no more than $1,000 for an initial loan -- to
high-risk customers at extremely lofty interest rates. Approval can
come instantly or within 30 minutes. Online operations often
deposit the loans in borrowers' checking accounts within 24 hours.
The debts generally are backed by the borrower's future
Customers tend to be those with little or no access to other
credit. They also tend to be relatively unsophisticated about
financial matters. Nevertheless, the field is growing. Cordray said
Americans are borrowing billions of dollars every year through
To some extent, the probe into payday loans and tribal
relationships reflects a new phase of supervision of the entire
field, both on and off tribal reservations. Prior to the CFPB's
creation in 2010, only state officials maintained regulatory
oversight of payday lenders, Cordray said.
"At the bureau, we now have the authority to examine nonbank
payday lenders of all types and sizes ... ," he said during a Jan.
19 "field hearing" on the matter. "So, now, the bureau will be
giving payday lenders much more attention. This is an important new
area for us, as we see it."
Still, much of the current attention is focused on tribal payday
lenders -- or firms that merely appear to be owned and operated by
Native Americans living on tribal lands. In both cases, these firms
are proliferating swiftly.
Loans 'easy as 1-2-3'
"Our cash loans are as easy as 1-2-3," a tribal online operation
called Plain Green says on its website. In smaller print, it tells
first-time customers that its loans tend to carry annual interest
rates of 299.17 to 378.96 percent.
An online firm called Bear Paw promotes its "hassle-free"
application process. Deeper in the website, it says that a customer
taking out an ultra-short-term $450 loan (with repayment due on the
borrower's next payday) could end up paying $607.50, a transaction
that would generate an annual percentage rate of 751.47
Both operations say they are "wholly owned by the Chippewa Cree
Tribe of the Rocky Boy's Indian Reservation, Mont., a sovereign
nation located within the United States of America," and both say
they are "operating within the tribe's reservation."
'Sovereign immunity' a key
These are crucial points for regulators trying to protect
consumers, and for tribal leaders trying to defend their rights
under sovereign immunity while also providing Native Americans with
The legal concept of sovereign immunity is complex, but when it
comes to commerce (including payday loans, casino gambling and
cigarette sales), it sharply curtails the actions of state
regulators. In fact, cases against apparent tribal payday loan
operations are frequently tossed out of state court on such
Technically, the legal concept does not constrain federal
officials from acting against payday lenders; but, given the
tensions that have pervaded federal government/Native American
relations for generations, the issue is highly sensitive.
"Whenever the feds get involved, it is almost always at the cost
of some right of the tribe to govern itself," said Chuck Trimble, a
member of the Oglala Lakota Nation in South Dakota and a former
director of the National Congress of American Indians -- a
Washington, D.C.-based group that works to preserve Native American
Trimble opposes federal regulation of tribal-based payday loans,
but he is also a sharp critic of tribal entities that run, or allow
themselves to be co-opted by, the operations.
"Tribal leaders must think of the consequences of their
actions," he said. "We can't be damning the 'greedy white man' and
still let greed endanger our rights as sovereign entities."
Neither Plain Green nor Bear Paw have come under regulatory
attack, but the FTC filed a case in April against Scott Tucker (a
semi-professional race car driver), his brother and other
non-Native Americans. The suit claims that their payday loan
operation piled inflated fees on customers, employed abusive
collection tactics and aligned itself with tribal entities in an
effort to seek immunity from regulation and possible
The FTC also has filed a case against tribal payday lender
Payday Financial LLC, charging that it unfairly compelled
debt-burdened consumers throughout the country to travel to South
Dakota and appear before a tribal court that did not have
jurisdiction over their cases.
Those actions and the new round of statements by officials of
the FTC and CFPB have alarmed many tribal leaders. They say that
most payday lenders operating under the auspices of Native American
tribes are truly owned and controlled by Native Americans, and that
these loans provide a genuine service to Native Americans and other
Americans with limited access to credit. They say that the tribes
will fight any incursion of their rights.
"The lack of understanding about how Native American tribes can
and do engage in commerce for their economic development creates
confusion and additional bias," said Barry Brandon, executive
director of the Native American Fair Commerce Coalition, a newly
formed trade group that says it represents tribes across the
country and more than 10,000 individuals.
"Understanding that Native American tribes are sovereign
governments and have the authority to create and regulate
businesses on their lands is the first step to understanding the
unique place that Indian tribes occupy in our country," Brandon
All well and good, said Trimble, but much more is at stake
"I have no question about the tribes' sovereignty and the powers
that derive from their sovereignty," he said. "But I decry even the
appearance of abuse of those powers for financial gain.
"The tribal people have suffered long from federal policy,
especially where such policy has stunted the tribes' potential for
economic development, and I understand tribal leaders' desire and
even desperation to attract capital to make up for the decades of
frustration they've faced in trying to finally serve their people,"
"But I feel that the dignity and decorum of sovereignty must be